In reading about how to measure success, I keep bumping into the idea that “you get what you measure.”

In the context of public pension fund management, I thought this was a useful idea to explore. What are we measuring and what are the results?

Pension policy is set by the Minnesota Legislature but the guiding principles, benefits and investment policy are recommended by the pension commission. The commission seeks input and advice from pension staff, fund administrators, actuaries, the state economist, investment advisors, union representatives and Howard Bicker, the soon-to-retire longtime director of the State Board of Investment.

Minnesota is welcoming two new players on the pension scene — actually they are well known players who are getting promoted.

On the investment side, SBI just hired Bicker’s replacement, Mansco Perry III. Perry, a former SBI employee, is not expected to alter SBI’s investment policy, so we can expect to get similar results. What are they?

SBI has about $52 billion to cover liabilities of at least $66 billion. Economists disagree on the exact method for calculating liabilities, but they agree that the liability is much higher.

SBI regularly receives accolades for a long-term 10 percent return on investment. No one publicly measures SBI’s success by asking how much is in the fund — or if there is enough to pay the benefits promised in the future. As long as SBI meets or exceeds the targeted 8.5 percent rate of return and has the cash to pay current benefits, SBI is a hero, even if it takes big risks to get there.

On the fund-management side, the Minnesota Teachers Retirement Association pension fund has “tapped” Jay Stoffel, the executive director of the Duluth Teachers Retirement Fund, to be the deputy executive director of TRA. His job starts in January, so Stoffel can manage the Duluth fund during a legislatively mandated study on the potential merger of the Duluth fund and St. Paul Teachers Retirement Fund Association into TRA.

Why a merger? Both funds are in big trouble. Duluth is in the worst shape, which is why its board just voted to merge. St. Paul voted to remain independent (though it will certainly ask for and continue to receive a bailout from state taxpayers).

Here are some facts about the Duluth fund that Stoffel has been running for two decades:

— The funding ratio is about 63 percent.

— 919 active members support more than 1,300 retirees.

— It is receiving a cash bailout from state taxpayers.

— Enrollment is dropping.

— But the fund has been getting 8.5 percent or better on its investments.

In recent hearings, both the St. Paul and Duluth funds arranged for their investment advisors to testify in support of keeping a target return of 8.5 percent. (Private pensions shoot for 4 percent to 6 percent.) They expressed great confidence, even in the face of sobering testimony from our state economist about expected financial headwinds.

When Sen. Dave Thompson asked about Duluth’s underfunding, the adviser had no answer. His job is to meet or exceed 8.5 percent over time. He does not get measured on how much money is actually in the fund. Stoffel offered only one reason: the “Great Recession.” Fair enough, but are there other possibilities?

For example: Did Duluth collect enough contributions to cover benefits? Did it pay out benefits it could not afford? Did the fund adjust for the increase in longevity or declining enrollments?

Apparently, no one views this failure as Stoffel’s responsibility. Instead of being fired, Stoffel got a promotion. What does this tell us?

We can conclude that Stoffel gets measured on the rate of return rather than full funding.

In case you think this has been a learning experience, you should know Stoffel has asked the state to increase Duluth teachers’ cost-of-living adjustments to match TRA’s COLA in the event of a merger. Now, that takes pluck.

I would also venture a guess that pension players are measured on their ability to protect — or at least not openly criticize — the current defined-benefit system. Otherwise, we might have heard more from knowledgeable veterans like Howard Bicker, who knows darn well that legislatures are not good at running pensions.

If we focus on one measure of success — rate of return — while ignoring measures of sustainability — liabilities and assets — we will continue to get the same poor results. This does not protect the interests of future or current retirees and taxpayers who are paying for these failures.

Kim Crockett is chief operating officer of Center of the American Experiment, a Minnesota-based, nonprofit nonpartisan public policy and educational institution that brings conservative and free-market ideas to bear on hard problems.

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